Verla Industries is trying to decide which one of the following two options to pursue. Either option will take effect on January 1st of the next year.

Option One Acquire a New Finishing Machine.

The cost of the machine is $1,000,000 and will have a useful life of five years. Net pretax cash flows arising from savings in labor costs will amount to $100,000 per year for five years. Depreciation expense will be calculated using the straightline method for both financial and tax reporting purposes. As an incentive to purchase, Verla will receive a tradein allowance of $50,000 on their current fully depreciated finishing machine.

Option Two Outsource the Finishing Work.

Verla can outsource the work to LM Inc. at a cost of $200,000 per year for five years. If they outsource, Verla will scrap their current fully depreciated finishing machine.

Verla's effective income tax rate is 40%. The weightedaverage cost of capital is 10%.

When comparing the two options, the $50,000 tradein allowance would be considered:

A. relevant because it is a decrease in cash outflow.

B. irrelevant because it does not affect taxes.

C. irrelevant because it does not affect cash.

D. relevant because it is an increase in cash outflows.